Financial statement audit

An audit of financial statements is a reasonable-assurance engagement performed by a licensed certified accountant, who gathers sufficient appropriate evidence to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. The opinion is not a guarantee that the statements are free of error, nor a certificate of management's competence or the soundness of business decisions.

Scope of work

• Annual statutory audit of the financial statements
• Review of interim financial statements
• Agreed-upon procedures on specified items
• Compliance review against regulations, contracts and internal policies
• Special-purpose reports for a named party

When an entity needs an audit

The need for audited financial statements usually arises from a regulatory or contractual source rather than an internal wish. The most frequent cases in the Saudi market:

• A statutory requirement based on the company's form and size under the Companies Law
• A condition in a bank facility or financing agreement
• Qualification for government tenders or supply to major entities
• A request from a partner or investor before entry or exit
• A supervisory body's requirement, such as the National Center for Non-Profit Sector for associations
• Preparing the entity for a sale, merger or listing

If the purpose is to submit the statements to one specific party, the appropriate engagement may be a special-purpose report or agreed-upon procedures rather than a full audit, at lower cost and time. We settle this with you before pricing.

Stages of an audit engagement

An audit engagement covers the following stages:

• Understanding the entity and its internal control environment and identifying the risks of material misstatement
• Designing audit procedures, analytical and detailed, that respond to the identified risks
• Testing material balances: cash, receivables, inventory, fixed assets, liabilities and revenue
• Confirmations with banks, customers, suppliers and legal advisers
• Reviewing events after the reporting date up to the date of the report
• Evaluating the appropriateness of the going-concern assumption
• Reviewing the adequacy of disclosures and notes
• Issuing the auditor's report signed by the engagement partner

Where appropriate, the report is accompanied by a letter to those charged with governance setting out significant internal control observations identified during the work. This letter is not a separate internal control report but a by-product of the audit.

Possible forms of opinion

Not every engagement ends with an unmodified opinion. The four possible forms are: an unmodified opinion; a qualified opinion where there is a material but not pervasive misstatement or an inability to obtain sufficient evidence; an adverse opinion where there is a material and pervasive misstatement; and a disclaimer of opinion where evidence on material and pervasive matters cannot be obtained.

Professional integrity requires the client to know this before signing the engagement letter: the type of opinion is determined by the evidence, is not negotiable and is not linked to fees.

Deliverables

An independent auditor's report signed by the responsible partner, accompanied where appropriate by a letter to those charged with governance setting out material observations on internal control.

What we need to begin

• General trial balance and ledgers for the year under audit and the comparative year
• Bank statements and reconciliations
• Fixed asset register and depreciation schedule
• Inventory count and valuation
• Aged receivables and payables
• Financing, lease and other material contracts
• Zakat and tax returns and payment certificates
• Commercial registration, articles of association and minutes of partners or the board
• Payroll and end-of-service schedules

A detailed list is sent after the engagement letter is signed. The readiness of these documents is the first factor in the time to completion.

Independence

We do not accept an audit engagement for an entity whose books we keep or whose financial statements we prepare, as that would mean auditing our own work. Nor do we provide advisory work to an audit client. Zakat and tax services are handled within the rules of the professional code of conduct and documented in the engagement letter.

Before accepting any engagement we perform an independence and conflict-of-interest check, and we decline the engagement if a conflict is established, before any discussion of fees.

Frequently asked questions

What is the difference between an audit and a review?

An audit is a reasonable-assurance engagement that ends with a positively worded opinion after sufficient appropriate evidence is gathered. A review is a limited-assurance engagement confined to analytical procedures and inquiries, ending with a negatively worded conclusion, and is typically used for interim financial statements.

How long does a financial statement audit take?

The timeline is set in the engagement letter according to the entity's size, number of branches and the readiness of its records. Late documents, not the volume of work, are the main cause of delay.

Can you handle both the accounting and the audit?

No. Preparing the statements and then auditing them is a direct threat to independence; we choose one role and keep to it.

How are audit fees set?

On the basis of estimated professional hours, team level and engagement risk, documented in the engagement letter before work begins. Fees are never linked to the outcome of the report.

Do you audit associations and non-profit organisations?

Yes, in accordance with the requirements of the National Center for Non-Profit Sector and the standards applicable to non-profit entities.